Deciphering Wall Street’s Alphabet Soup

In case you missed the news, Carver Federal Savings Bank recently made the jump from Nasdaq to AMEX, making it the only (and first) black-owned firm to be on the American Stock Exchange. All well and good for Carver, but for the uninitiated, the various stock exchanges on Wall Street can often seem like a literal alphabet soup of financial services. Whether it’s Nasdaq (National Association of Securities Dealers Automated Quotations), New York Stock Exchange (NYSE) or AMEX, many would-be investors glancing at the listings in the daily newspapers have only a passing knowledge of how each exchange differs beyond its acronym.

There are distinct advantages for Carver being on one exchange over another. First, the Justice Department and the Securities and Exchange Commission have been investigating dealer manipulation of markets in Nasdaq. Secondly, the prices of stocks sold on Nasdaq generally exhibit higher volatility than those sold on AMEX. AMEX, like NYSE, is an agency- run exchange–it benefits from reliance on specialists to ensure orderly trading of a security. Specialists purchase and then sell a security to keep its price from fluctuating wildly in one direction or another.

The selling price of the stock is also a huge factor. When Carver first went public, its stock sold for $10 a share. After four months on Nasdaq, the price plummeted to below $7 a share. Stock prices have since climbed. The opening price on AMEX was $9.75 a share. So another reason for jumping exchanges is the hope that a move will increase stock prices This was clearly a motivation for Carver’s President and CEO Thomas L. Clarke Jr., who believes AMEX will provide “a more efficient market for our stock, improve liquidity for stockholders and create greater visibility for the company.”

AMEX has tighter regulations on financial disclosures than Nasdaq, so a listing on AMEX sends a message to potential stockholders that the firm has met those requirements. This information can reduce the perceived risk of a company’s stock and increase demand for its shares. In addition, institutional trading costs are lower than those on Nasdaq.

So what does this mean for wary Investors studying the financial listings? In general, firms listed on AMEX are more financially secure and have gone through more rigorous disclosure practices than firms listed on Nasdaq. So while it may seem like a nonsensical soup du jour mix of letters, there is a method to Wall Street’s madness.